Why Energy Storage Is the Future of the Grid (with Malta CEO Ramya Swaminathan)
Renewable energy is the future of power, but relying on solar, wind, etc. will require a more reliable and resilient grid. Effective energy storage would make it possible to smooth out discrepancies in supply and demand, and harness renewable power more efficiently.
A range of technologies are being developed and refined with that mission in mind, including large-scale lithium-ion batteries and clean hydrogen storage. Former Alphabet X moonshot spinoff Malta Inc. uses established industrial processes and molten salt to store energy and pump it back into the grid as demand requires. Malta CEO Ramya Swaminathan joins Azeem Azhar to discuss why energy storage is so crucial to fighting climate change, how it could affect the economics of energy, and why the electric grid of the future will be more technologically diverse and complex than today’s.
They also discuss:
- How progress in energy storage could hit an exponential inflection point.
- Working with established companies to revolutionize power distribution.
- The market mechanisms necessary to optimize the grids of the future.
“Energy Storage to Steal $277B From Power Grids by 2050” – BloombergNEF, Mar. 2021
“Energy Storage Grand Challenge: Energy Storage Market Report” – U.S. Department of Energy, Dec. 2020
Bloomberg New Energy Finance
AZEEM AZHAR: Hi there, I’m Azeem Azhar and you’re listening to the Exponential View podcast. Now, every week I come together with a brilliant mind to explore how exponential technologies are shaping our near future. Now, to take your exponential thinking further, you can sign up to my weekly newsletter and for listeners to this podcast, there is a special 20 percent discount if you go to www.exponentialview.com/listener. Now, on to today’s episode, renewable energy is going to be essential to securing that future. But the methods we have for generating clean energy aren’t without their shortcomings. For one thing that intermittent a solar panel isn’t much use at night and a wind turbine can’t generate electricity when it’s not windy. The opposite can also be a problem, if a renewable power source produces excess electricity, when demand is low, it goes to waste.
AZEEM AZHAR: These issues are becoming more pronounced as renewable penetration increases. One solution, energy storage infrastructure. Systems that allow us to squirrel away excess power when we don’t need it and use it when we do. Today’s guest Ramya Swaminathan, runs one of the most exciting companies working in that field. Ramya has a background as a banker and didn’t hydroelectric power. And she’s now CEO of Malta, a spinoff from Alphabet’s Moonshot Factory, X. Malta System converts excess energy into heat and stores it into molten salt, using a heat engine to then turn that heat back into electricity. In theory, the system could help the grid flatten out discrepancies and demand and supply and underpin a more efficient power system driven by renewables. Ramya Swaminathan, welcome to Exponential View.
RAMYA SWAMINATHAN: Thank you, Azeem, I’m happy to be here today and with you.
AZEEM AZHAR: It’s such a big challenge that we face general issue of de-carbonization and the one we’re discussing today, which is how we rethink the grid is another big challenge within that. When you wake up in the morning, how do you think about this enormous apple that you’ve been told you’ve got to eat?
RAMYA SWAMINATHAN: I feel like we’re on a remarkable journey and at a remarkable point in history, the remarkable fact is that irrespective of policies and regulatory frameworks that incentivized renewables, renewables are penetrating markets everywhere, simply due to the inexorable logic of economics. They are now the cheapest form of generation. So as I said, irrespective of whether you have policies that incentivize renewables, you have more and more renewables coming onto electricity grids globally, that sort of happy backdrop against which I consider the potential that Malta and frankly, other technologies as well, that are operating in the storage space because the conversation is immediate, it is relevant and it is immediately integratable into what we see as not only our immediate future, but our intermediate and long-term future as well.
AZEEM AZHAR: In my book, The Exponential Age, I talk about the decline in price of renewables, and it’s not just solar generated electricity, which depend on solar panels. It’s also these mighty wind turbines are getting bigger and bigger. And I have an argument as to why they’ve got so much cheaper over time, but I would love to know your view as an insider.
RAMYA SWAMINATHAN: I would say a critical part actually was government action. If you look at the role that subsidies feed in tariffs and other economic activities that really governments engaged in particularly the German government to incentivize investment into this area and the recognition that the first units are necessarily more expensive. And to figure out a way to fund those in a way that protects consumers because affordable electricity is certainly needs to be central to this debate, but at the same time results in volume of the technology being shipped and deployed, which ultimately is absolutely necessary to the cost declines that we see today in wind and solar.
AZEEM AZHAR: So there’s an intricate dance between the profit seeking company, the mission driven entrepreneur and innovator, and the need to unleash the social welfare of these technologies when they’re cheap. And that need can be met by policy intervention as it was by the German government in the ’90s, subsidizing rooftop solar, which drove up demand. It kicked off the Chinese industry as volumes increased. We went down the learning curve and unit cut prices started to decline and brought us to where we are today. So there is that balance, that ballet that happens between enterprise, the consumer and the state.
RAMYA SWAMINATHAN: And there’s an extremely meaningful role for each of them to play. So for governments to play in this using catalytic capital and catalytic policies, there’s a role for the entrepreneurs to play to push these revolutionary technologies forward that can meaningfully affect the way that we generate store, distribute and transmit electricity. And then of course the consumer is central to all of this, right? Because the expectation that the consumer is entitled to have a reliable, resilient and affordable source of power is central to the reason that all of us wake up in the morning.
AZEEM AZHAR: Bloomberg New Energy Finance, who are amongst my favorite forecasters in this arena, reckoned that by 2050, in order to have a clean grid and a pathway to net zero, we need to have about 7.7 terawatt hours of electricity storage available on the planet. That’s either a big number or small number, I guess it depends on where we start. So in your estimation, whereabouts are we in terms of that kind of storage level today coming to the end of 2021?
RAMYA SWAMINATHAN: Yeah. I always like conversations that talk about terawatts as the scale, right?
AZEEM AZHAR: That’s your market size.
RAMYA SWAMINATHAN: That’s the market size, right? And when we look at the history of storage, I think it’s important to think about solutions that have worked to this date. And the oldest form of energy storage is actually pumped storage hydropower. It was an extremely effective solution for its time and for the places in which it was deployed. And actually you can look at the history of nuclear plants and umped storage hydropower and see a symbiotic relationship between those as well. In recent years, lithium-ion has essentially become the incumbent technology for deployment of storage. But I think as we look forward, the reason that this problem is so complex and so interesting and so necessary for us to solve is that it has many dimensions and scale in terms of terawatts is one of them, duration is another one. And what we see is that as we move from a grid that is even today, a healthy 20, 30, 40 percent renewables and as we push that up towards having grids be much more like 70, 80, 90, 95 percent renewables, the duration needs of the kind of storage that are on the grid will start to change as well. And so I think that it’s going to be a very big tent in terms of scale, but I think the big tent also means that it’s a big table with a lot of seeding for a variety of technologies that provide different services, that provide different levels of duration that serve different scale points in the market. Which means that we’re going to really need a huge variety of solutions. We’ll need seasonal solutions, we’ll need a few hours of solutions that are able to like lithium-ion respond in the millisecond scale. And we will need a huge amount, a great glamping pile of what multi provides as well, which is daily and weekly cycling.
AZEEM AZHAR: So how far along do you think we are to that global storage target? Are we five percent of the way there or further?
RAMYA SWAMINATHAN: You can of course look at the amount of storage deployed, look at projections and then take a percentage, where I think what we see though every year, those projections for what amount of storage is needed are going to get greater. And the slope of that curve is going to get steeper and steeper. So I don’t think it’s as simple as just taking two numbers and deriving a fraction. And I think we’re only at the beginning of this journey.
AZEEM AZHAR: That’s been the story of how renewables have come on stream over the last 20 years, the IEA forecasts were consistently pessimistic for nearly two decades because I suspect they didn’t capture the industrial dynamics of the learning rates and the implicit demand for those technologies and those types of solutions, which makes the forward forecasting challenging. I mean, when I looked at this data, I got a number roughly from one U.S. Department of Energy report suggesting, including, I think some of the car batteries, there was about 500 gigawatt hours of storage at the end of 2019 with a target of about two and a half terawatt hours by 2030, which is a fivefold increase, and in traditional linear markets that might make you feel a bit nervous because it’s fivefold in 11 years, but in exponential markets, it doesn’t make us feel nervous. I think we can see that cost cuffs can come down and we can see that companies like yours and others can scale to meet or even exceed those types of targets.
RAMYA SWAMINATHAN: I think a critical part of that dynamic too, is the comfort level on the customer side. So one of the dynamics that I think is absolutely critical to electricity markets is that the utilities, load serving entities, et cetera, globally, are extremely heavily regulated. One of the barriers to adoption is that utility, the end user customer in these markets is risk averse and justifiably so in the sense that you and I expect that when we flip our lights switch, not only does the power come on, but it comes on in a safe way. We would not tolerate a lack of safety in the process that exceeds what we’re used to. So you might say that the very strict regulation of the customer is entirely justified, but it’s a really important part of the dynamic here, which is that proving out the initial deployments has a really catalytic impact on the ability of other customers to adopt the technologies and on scales that are in the hundreds of megawatts, gigawatt scale, what you see is not that you build one project and it works for 10 years, and then you build another one and it works for another 10. But what you see is maybe a big dam to bus through for the first set of deployments, but then a huge, and as you say, exponential adoption after that.
AZEEM AZHAR: Getting those first few comfortable is always important and more so with this risk of us customers. So if we just go back to the storage challenge, you talked about three technical dimensions. So one was capacity. The second was duration. And I guess the third was response time. How quickly does the storage that show up? So we’ve talked a little bit about capacities and volumes. How do you think about those other two dynamics? The duration and the response time and what you mean by duration in this context?
RAMYA SWAMINATHAN: Normally, when I talk about duration, I’m really talking about discharge duration. You can think about all storage having two major or three, actually major ways of functioning, they’re in charge mode. They can sit in a state of charge while they’re waiting for a signal that what they want is needed back on the grid or for the end user. And then they’re in generator mode or discharge mode. And we know this just from all the electronics that we use with batteries all day long, we charge them, they might unused for periods of time. And then when you need it, the battery is there to service it. So when I talk about duration, what I’m really talking about, how long can you discharge? And as I said, it’s a big table with lots of different segments that need to be serviced. So if you think about a customer that is being served by solar, so alert has the virtue of being pretty predictable in areas with good resource, your maximum irradiation happens for call it six to eight hours. And if you wanted 24/7, have solar be the source of that power, you essentially need to have discharged duration of the remaining call it 16 to 18 hours. If you were charging six hours, you’d need to be able to service the rest of the day. That’s a classic diurnal cycle. When you come to resources like wind, it’s a little more unpredictable, ideal duration for class A wind would be something in the 20-to-25-hour range. There’s talk of seasonal storage as well. And so you might expect to experience a winter peaking system. And in that context, you might actually need storage for well beyond a week. You might need it for several months. And so that’s what I mean by duration. And just in the examples I’ve given you, you can see that different durations are needed for different application. What you can see right away is that the duration of systems ability to service discharge becomes a critical driving point behind what use cases you can service.
AZEEM AZHAR: What it also suggests is the market has a number of simultaneous and quite different needs, unless there is a single general-purpose technology that can manage all of these. We would expect there to be a portfolio that will be implemented. So where does Malta fit in that portfolio? What are you good at?
RAMYA SWAMINATHAN: We serve very well, a couple of the use cases I just mentioned, solar diurnal cycle. So you’re charging during the day in all likelihood, the grid is being served directly by solar during the day. So you’d want to size your solar plant to have excess power, to provide solar power when it’s cheap to charge the storage device. And then for the rest of the day, really be able to provide the stored power for what a lot of people are starting to call sundown solar. We can serve as wind. As I said, our modeling shows that 2,025 hours is your sweet spot for firming wind. We can operate in a weekly cycle as well for a variety of other applications in grid connected applications, where exactly, as you said, there is a complex resource mix.
AZEEM AZHAR: There’s a complex shift that’s underway at the moment because the current way the grids are structured is a lot like a traditional industrial value chain. The combined storage combustion medium of the fossil fuel shows up at the power plant. It gets burned and then the energy gets pumped out one way down the grid and gets distributed by types of step-down substations along the way. When we now think about particularly most sort of Malta’s role in all of this, would we expect there to be a Malta storage solution in every suburb or in every neighborhood? Or is it a city scale solution? What does this start to look like? I mean, is there some analogy between moving from mainframe computing to mini computing or PC computing that might be helpful or will this really be big, giant vats of molten salt that will sit next to where the coal-fired power stations used to be?
RAMYA SWAMINATHAN: We’re used to exactly, as you said, a relatively simple model where fuel and output are also decoupled. So you have some kind of fuel, you can think of that as coal, as gas, as hydro, as water, all coming into some kind of generation station and then being distributed out through transmission, and then ultimately distribution lines. We are moving towards bidirectionality in the grid in a big way. So storage is a great instantiation of that. The fuel here is really charging electricity. It’s electricity in, electricity out. So one major thing we’re all going to have to deal with is the complexity of that electric grid, when you have electricity moving in a variety of directions. And I think that points to the need for smart digital solutions. The control of that grid will be even more complex than what you called kind of a classic supply chain or a merit order type control. And there is a significant amount of decentralization. You might think of it as democratization as well. There’s a significant amount of decentralization in that process as rooftop solar, maybe EV2Grid, you have a number of resources that are now generating power, potentially putting them back on the grid that are not your 350 megawatts centrally controlled, centrally located coal plant.
AZEEM AZHAR: You’ve outlined the system and how nuanced and complex that we’ll get, where we’ll multi-fit in all of that?
RAMYA SWAMINATHAN: We are really focused on 100-megawatt deployment. That’s rated power. That’s a big system that’s on the transmission side, that’s a bulk power system. And we are today looking at something like 10 hours of discharge duration.
AZEEM AZHAR: So typical home is churning through power at five kilowatts. So that’s 20,000 homes a time from 100 megawatt system?
RAMYA SWAMINATHAN: Yes. And I think about that for call it 10 to 150 hours. I said before that it’s a daily or weekly cycle. And the reason that we can be so flexible about the discharge duration that we serve really comes down to the technical underpinnings of the multi-system itself and how it’s designed. The energy part of the system, in the case of our technology sits in the form of molten salt and a commodity anti-freeze fluid on the cold side. So extending duration from 10 to 20 to 30 hours and beyond that is really a matter of adding more salt and adding more coolant. And what’s more, it’s the cheapest part of the system. And so on a per kilowatt hour basis, the longer the duration, although the total cost of the project goes up on a per kilowatt hour basis, your installed cost goes down.
AZEEM AZHAR: So the Malta System high-tech though it is and spun out of Alphabet’s Moonshot Factory essentially uses salt and absolutely bog-standard anti-freeze that has already been driven down to the lowest cost by the last 50 years of development. I mean, that’s a really interesting combination. I’ve got to ask this question, how do you melt the salt? And please tell me it’s lasers.
RAMYA SWAMINATHAN: So how you melt the salts is just with heat trays with essentially wires that heat the salt. And it’s important that the salt always stay above 270 degrees because when you get below that the salt solidifies, which is really bad for a variety of reasons, but let me just extend the point that you’re making, which is you think about new innovative technology. We certainly are part of that landscape, but if I were to tell you just one thing about the multi technology, it would be this it’s that every system, every sub component is well known and well understood and has been deployed in power plants at this scale for, in most cases, multiple decades, in the case of the salt loop for about a little more than a decade, concentrated solar uses the same kind of salt and stores it in a similar fashion. So if you think about the Malta System, it’s a heat pump and a heat engine, and the primary parts are turbo machinery and heat exchangers, both of which are used in spades, in power plants and the rest of the balance of plant the salt loop and the coolant loop. As well as the central closed loop air cycle, are pipes, pumps, tanks and valves.
AZEEM AZHAR: Where is the innovation in Malta then?
RAMYA SWAMINATHAN: The innovation is in integrating existing known subsystems into a completely different application. It really is about taking well understood equipment, well-understood subsystems and integrating them for a completely new application.
AZEEM AZHAR: That’s really fascinating. And what it does of course, is it de-risks a whole bunch of the questions that you think about when you get to scale because the supply chains are already established. There’s already know how there are engineers across industry who understand how to use the various components, how to work with the chemicals. They have judgment around looking at operational parameters and processes. So all of that actually helps because there are perhaps not the whole playbook is well understood, but many of the chapters are widely understood.
RAMYA SWAMINATHAN: That’s absolutely true from a risk standpoint, the extension I would make to that point is in our view, it really adds to the viewpoint of the energy transition being adjusted, transition. Particularly in coal plants, where coal plants are shut down, there’s a real opportunity to incorporate and use the incumbent workforce to build, operate and maintain the multi-system in place of the coal plant. So we see this playing a real role, and that dynamic actually rolls all the way up into our supply chain, where we have partners such as Siemens Energy, making our turbo machinery who have obviously a huge portfolio of turbo machinery that services fossil assets. And so we really see this as a big tent approach and the ability to take with us incumbent workforces, supply chains, technologies, equipment, manufacturing into the energy transition.
AZEEM AZHAR: Take me to West Virginia, where they have coal plants. What would it take to convert a coal plant to a Malta plant?
RAMYA SWAMINATHAN: Interestingly, we’re looking at that question right now in partnership with Duke Energy, it’s a work that has been supported by the U.S. Department of Energy. And we hope to be in a position to share results from that later next year. I mean, it’s a deeply unsatisfying answer, but my answer to some extent is it depends on what’s there. At its simplest level, if we did nothing else except to take the site of the coal plant and electrically interconnect, perhaps some of the electrical equipment, but saying that there’s no further use for the existing coal equipment that’s there, that’s at its simplest level certainly possible. And it has the virtue typically of being a node on the grid where there is a large interconnection access because that’s typically what coal plants do. And it has the added virtue of being able to incorporate that incumbent workforce. We’re also looking at more interesting versions of that, including thermal integration into the existing boiler equipment. So as I said, that’s work in progress. We’ll be able to talk about it more in detail I think sometime next year.
AZEEM AZHAR: This speaks to the challenge of scaling a technology like this. This may be a technology on a exponential price decline as you get better at doing it much as we saw with silicon chips. But of course the secret with chips is that the fabs that make the chips cost billions and billions of dollars and take a long time to build. So how do you think about the timelines to build out Malta storage plants? How long do you think it will take and how quick can it get? Because we’re literally on a burning platform.
RAMYA SWAMINATHAN: Yes, we are. So the critical design decisions for Malta from day one and I certainly can’t take credit for them. From the conception, the original idea for Malta was the brainchild of a professor at Stanford named Robert Laughlin. And he had this insight years and years ago that you could take existing well-understood equipment and integrate it for a new application to result in low cost, long duration, energy storage. And all design decisions have been made with a view to using commodity materials and as little transformation of existing products as possible. And there certainly is, there is design development there. For example, if you take the case of our turbo machinery, we’re not combusting anything. So it’s not as simple as taking a gas turbine and just putting it into a Malta System. There certainly is innovation there. All that being said, that is very much within the capabilities of the world-class companies that we’ve brought to the table as partners. Siemens is making our turbo machinery Alfa Laval is making our heat exchangers. So to round all of that, to the original point of your question, which is how quickly can you get to market and deploy this at scale? The answer in utility terms is very quickly, but I have to start with that caveat that in utility terms, commissioning a project in 2024 or 2025 is tomorrow is around the corner. Because we’re talking about a construction period of call it 18 to 20 months, we’re talking about permitting, we’re talking about interconnection, et cetera. But we believe that we’re going to be in a position to commission our first projects in that timeframe, which in the context of large power equipment is essentially tomorrow.
AZEEM AZHAR: Let’s consider the cost. So electricity is typically priced on a per kilowatt hour basis and what you and I pay is residential consumers as much higher than the bulk pricing, what will be the cost on that basis of electricity from a Malta power plant when your first power plants get going, and what will that cost look like in a decade on from then?
RAMYA SWAMINATHAN: I think about this in a variety of ways. So one of the critical dynamics that we’re seeing is that essentially charge electricity, which is the price of solar and wind is ask them to look into zero. And that has actually a very powerful impact on the overall cost of the delivered electricity through a storage system. So as we continue to climb down the cost curve, we already see options for solar clearing at the $10, a megawatt hour range.
AZEEM AZHAR: $10 per megawatt hour is that a cents per kilowatt hour, right? Which is incredible low, yeah.
RAMYA SWAMINATHAN: Incredible. Right? So we’re already seeing those prices. Now, that’s not everywhere, that’s not in every auction, et cetera, but overall that’s a dynamic that we’re seeing in the market. And certainly over the long-term, we expect that PV plus Malta or wind plus Malta will be competitive on a cost of electricity basis. We’ll be competitive with the cheapest U.S. natural gas. So call it 40, $50 a megawatt hour. And that’s really the goal. The goal is to have renewable power that is firm and dispatchable. And we also recognize, of course, that there are going to be places where we are deploying a project more into a complex and diversified grid environment. And so you’re not going to be able to break down the cost specifically of the renewable power plus Malta in that exact way that you would in a behind the meter type installation. But the goal is the same, which is to say that we expect that renewables plus Malta will be competitive with U.S. natural gas.
AZEEM AZHAR: When you often look at cost cards in technologies, it’s the learning rate around emergent components that drives a lot of the price decline. And that’s certainly what happened in silicon chips. And that’s what happened in a solar photovoltaics. We had to discover new things and figure out how to miniaturize them and get them more dance and find materials that were higher efficiency and so on. But when you look at combinatorial technologies like Malta, which are dependent on tried and tested technology components that have already had the cost whipped out of them over decades of learning and scale. I wonder whether you can see the same cost declines walking down that learning curve. In other words, the techno economic model for a Malta might not have as steep a gradient as a techno economic model for something with lots of unproven components like nuclear fusion for sake of argument.
RAMYA SWAMINATHAN: At its base, you’re correct. We’re leveraging mature technologies. Now, are there declines in cost as our volumes become higher in the dedicated manufacturing facilities and the heart tooling and all of that, that will ultimately be needed? Absolutely. There are cost declines, but are they exponential the other way round? I think you’re right about that dynamic, the critical thing for us in terms of thinking about cost declines as well is we think about the dynamics of time to market and R&D optimization for cost as being two variables that we think about simultaneously. So we are optimizing today forgetting to market as quickly as possible with known technologies, not a lot of R&D. Over time I think where we’re going to see some significant declines is if there is significant R&D that will enable optimization of the system that if the day not seen any existing technologies.
AZEEM AZHAR: So Malta’s approach is one of the approaches to storage. And there are others you’ve talked about lithium-ion batteries being the thing that people think about. We have them in our electric vehicles and people are stringing them together as virtual power plants. And of course, there’s a big battery down in Australia made of lithium-ion. We’re also seeing other intriguing areas. One is Aries, which sort of rolls heavy weights up a hill and lets them drop. One of my friends found that a company that uses cranes to lift concrete blocks in the air and store the energy has gravitational potential energy. And then there’s finally, if it’s moment may have come the promise of clean hydrogen as a storage medium. I mean, when you look out at those technologies, where do you see them fitting into the storage mix over the next couple of decades?
RAMYA SWAMINATHAN: There is a huge amount of innovation in this space. And there are all these companies trying all different technologies trying to solve a part of. And I wanted to emphasize that because I think it’s going to come down to market segmentation and the specifics of the use cases that each of these technologies can serve. Each of these solutions is ultimately going to have a different sweet spot in terms of the things that we talked about, the duration, the rated power. So do they serve a residential market, a CNI market, a commercial, industrial CNI market? Do they serve bulk power at the transmission scale? How are they scalable beyond whatever bite size unit they come out with? And that’s going to affect cost profiles. And then importantly, what are the ancillary services that they offer as well as we take fossil assets out of the grid and they’re being replaced by intermittent sources, as well as potentially some inverter-based technologies. We are going to have to replace the kinds of ancillary services that traditionally have been provided for by fossil assets and sort of we’re part of the deal. You got rotational inertia because you had a lot of spinning machinery equipment on the grid. And as you add more and more intermittency and do not replace it with further rotational inertia, you’re adding inverter based technologies. Then what you have is technologies that are synchronous with the grid that add real rotational inertia are going to be privileged. And I think you’re going to start to see that kind of segmentation within the market as well, where the grid operators are going to start either having separate tariffs for the kinds of values that each of these different technologies bring to the table, or you’re going to have prioritization of certain capabilities based on what technologies bring to the table. And so that is going to be a meaningful spread of where each of these puzzle pieces fit into the puzzle.
AZEEM AZHAR: We’ll only see the full picture of that puzzle as we get further along the shift towards renewables. But we do have early signals that are emerging in various grids that have got to 20, 30, 40 percent renewable power. What are the types of issues that we’ve run into and how are we solving them today?
RAMYA SWAMINATHAN: We are definitely seeing markets where there is significant renewables penetration, having problems with allocation of resources and servicing load, because the original grid was not architected for this level of intermittency. The more intermittency you inject into a system, the more difficult it is to have predictable matching of supply and demand. Look, if you look at California, you’ve got significant solar resources coming onto the grid during the day, you’ve got shoulder hours, the evening peak, the morning ramp that are difficult to serve. And we need to shave those peaks so that we can serve them with the generators that we do have. We do have curtailment, not only is the issue with intermittency that sometimes we don’t have the generation, so we don’t have the sun at night, but we also, during the day may have excess production that the grid cannot absorb. And so in that context, you’re curtailing a lot of these resources, which leads to difficulty in capital allocation. So somebody invested into a project that’s being curtailed for a significant amount of time. In addition to that, we’re also seeing technical violations on grid environments that traditionally had what are called the ancillary services support for reliability throughout the system that traditionally was provided by fossil assets. So you have thermal violations or voltage violations. We have issues with rotational inertia, which regulates frequency support on the grid. And grid operators are having a hard time. I’ll give you an example, actually, that we found from an inbound inquiry from a potential customer that is a nuclear customer in the context of a grid environment where there’s a lot of renewables penetration that is in a must take environment. So essentially the utility is going to have to take the renewables during the time where they’re produced significantly, which results in negative pricing, which is very difficult for any kind of generator, particularly a nuclear generator that can really curtail its operations to be dealing with from an economic perspective.
AZEEM AZHAR: So negative pricing means that essentially you have to pay someone to take the power that you’re generating, but aren’t things like that tackled less by technology and more by pricing or hedging or those types of insurance products where I can essentially smooth out volatility by getting someone to buy whatever risk exists on the upside or the downside wouldn’t mechanisms like that solve this issue?
RAMYA SWAMINATHAN: I think the issue there is that this is not an insurable risk, right? As you have increased renewables, and that percentage only goes up, you’re going to see this dynamic more and more, that does not neatly fall into the traditional type of risk profile that is insurable. So I would say in this case, when you think about negative pricing, I think you’re going to see more and more of it. And I think that technological solutions are really important to level out the match between supply and demand. But I think you’re pointing to a very important dynamic, which is in my mind, less about insurance and more about market design because market design is absolutely critically important. And what kinds of technologies are deployed will come down a lot to what the market design is and what the incentives are for deploying certain kinds of technologies. And I think if you asked any provider of long duration, energy storage technologies, including by the way, there’s not about technology risk and pumped hydro storage, the oldest form of storage technology, they would say that in most markets that I know of long duration energy storage is not adequately compensated for the values that it brings to the market. Market design has a huge impact on the kinds of tariffs that are offered, on the kinds of services that are valued within a market, that kinds of revenue streams that ultimately projects or utilities can segregate for different values that are offered to the market. And if we don’t get that right, we’re not going to get the right mix of technologies that enable increased renewables penetration, but at the same time, ensure a resilient, reliable grid.
AZEEM AZHAR: Is that the point that one type of storage is not identical to another type, even if there’s sort of the energy component is the same, because we may value longer duration storage, more highly than instantaneous storage.
RAMYA SWAMINATHAN: Absolutely. They’re going to be different services, different flavors of the storage, if you will, that are going to offer different things to the grid environment and ultimately to consumers. And we need to have market design that enables the diversity of those services. In that sense, the point of market design is not really to choose winners or losers. It’s not really to dictate what technologies participate. It’s rather to stay. Here are all the values that are needed to operate an affordable, reliable, resilient grid. And how do we create market mechanisms tariffs? And how do we think about paying for those services in a way that will ultimately incentivize the right people with the right products to come to the table and offer their services? That’s the critical part of it I wanted to say.
AZEEM AZHAR: How different is this interplay between energy source grid, infrastructure, regulation, constant demand, how different is that country to country, other peculiarities of the U.S. that make it easier or harder than other countries? What might it look like elsewhere?
RAMYA SWAMINATHAN: It is very different, country to country in the United States, it’s different market to market, node to node et cetera. It certainly is different depending on resource potential as well. So in the world of increased renewables, we have to also recognize the different places of different resource potential. So incentivizing solar in a place with not a lot of solar endowment does not make a lot of sense. And so, yes, it’s very different depending on the geography and the jurisdiction. The other point I’d make is, and we do see this divergence where you have policy prescriptions about certain numbers of megawatts of storage that need to be deployed. But if the market design underlying that policy prescription or mandate does not support a diversity of resources providing a diversity of ancillary services to the grid environment, you’re not going to see the diversity show up at the table. You can have a policy mandate for some things, but they tend to be prescriptive and blunt in their formulation. And so the point I will continue to make is that if the underlying market design does not support the diversity of the values that are needed at the table, what you’re going to get is a very blunt execution of a policy mandate that is not responsive to the underlying needs.
AZEEM AZHAR: You’ve just thrown a spanner in the works of course, because that’s an additional layer of sophistication with a whole set of new technologies and a wide variety of new considerations. What do the policymakers who are going to design this policy need in order to do that well?
RAMYA SWAMINATHAN: Understanding the very complicated dynamics at play here is absolutely essential. And having policymakers who in different geographies in different jurisdictions of course, are going to be organized differently, understand that this is a common battle that needs unified and collaborative solution making across the different areas of policy, regulatory, market design, and any other kinds of frameworks that you need, whether that includes permitting, interconnection, which is how quickly can you interconnect to the grid? And different geographies, obviously one run that process in very different ways. So all of these I would say critically, we need to have a conversation with nuance across all of these different folks to really understand what is needed and then to enact policy design, market frameworks, interconnection frameworks, other permitting processes, et cetera, that really understand and adapt to the necessary policy requirements.
AZEEM AZHAR: You’ve got some useful experience here because Malta is one of the earliest new energy storage companies out of the gate. And many of our listeners will be sitting in that intersection of policy and technology. So it’s an opportunity to share your learnings for people across the world who will listen to this, who may be helping the design of these systems in their countries, what specifically needs to come together in order to have the right group of people making the right kind of policies for this type of distributed grid so that we can hit the number that Bloomberg New Energy Finance tells us we need to hit, which is a sort of five X increase in capacity in the next 10 years alone. What would be the takeaways that you would be sending out to entrepreneurs who are earlier than you in the process, and also perhaps policymakers for thinking through this question?
RAMYA SWAMINATHAN: On the entrepreneur side, I would say that what is absolutely essential is to really think about participating in policy making and regulatory decision-making processes. As entrepreneurs, particularly ones on the technology space, we sometimes tend to think if I make a great widget, it will solve the problem that it’s supposed to solve. But in this case, in the context of the urgency, with which we’re undertaking this journey, and also the complexity of the landscape ahead of us, there’s going to be no substitute for the people who know best you know, best what your technology does and what it doesn’t do to participate, including in collaboration. We’re all at a stage where yes, there’s always a temptation to think about other companies as competition, but we’re all at a stage, frankly that a huge amount of collaboration among the entrepreneurial community is absolutely essential to ensure that policymakers and regulators hear directly from the people who know best about how these technologies work as to what they bring to the table.
AZEEM AZHAR: On the other hand, of course, they need to know where to go. I mean, I picture the entrepreneur on their ramen noodles diet, walking up to some enormous stone building with marble steps saying, “I need to talk to the person who’s rethinking the grid.” So we also need to, I guess on the other side, have receptive regulators who make it easy for the entrepreneurs to reach them.
RAMYA SWAMINATHAN: And the other thing is that there is an enormous amount of work being done in aggregated ways. So there are industry associations in most geographies that I know of there are in terms of long duration, the Long Duration Energy Storage Council actually is just making its launch here at COP26 which has founding technology partners and founding energy company members, et cetera. So the thing I would say is definitely, participate individually as companies in regulatory proceedings, but that is a major challenge for a small company. And as you say, an entrepreneur on a ramen diet to boil the ocean, to find individually regulatory proceedings and policy proceedings globally in which participate. So the way to magnify and multiply one’s impact is to do so in groups, and to really benefit from the knowledge that others bring to the table. So that would be one thing I would say, and clearly.
AZEEM AZHAR: The other part of course, of the entrepreneur’s journey before they get to the policy makers door is figuring out how they fuel their startup, storage is about as far away from a mobile app where you swipe left or right, as you could possibly imagine, what advice do you give to entrepreneurs going on this journey around funding their businesses and the type of capital that they should get compared perhaps to the type of capital that they can get?
RAMYA SWAMINATHAN: The positive news on investment on the investment side is that it’s a terrific investment climate for anybody starting on this path. I think there’s a lot of mission driven capital. I think there is a huge amount of interest in decarbonization generally and in storage specifically. So huge words of encouragement out to anybody who’s thinking about taking their step on this path, which is, this is a terrific environment in which to do that. All that being said, I probably just softly say all the same things anybody would say, which is the entrepreneurial journey as tough be prepared for a lot of “no’s”. I do think that one thing that’s important and it’s something that I’ve struggled with as well, is that the problem we are trying to solve is extremely complex and the solutions by and large, the solutions we bring to the table are extremely complex. And our customers utilities IPPs the folks on the other side of the table, as well as investors are being brushed by complex messages, including claims about what different technologies can do. And so if I had a piece of advice, it would be, I think we really need to simplify the complexity of the message while maintaining obviously nuance and truthfulness.
AZEEM AZHAR: When do you say the first teenagers will be able to get home from school and fire up their Xbox and have that power supplied by a Malta power plant?
RAMYA SWAMINATHAN: I’m hoping that’s 2024.
AZEEM AZHAR: Something to look forward to. So the energy sector has generally been a story of consolidation. There are a few super majors, there are a few operators of power stations. Grids are quite often highly regulated and run as semi or pseudo monopolies. Do you think the future grid will be a more diverse, fragmented, decentralized one where many, many different players involved and is that desirable? And if it’s desirable, what are the levers that regulators can play to encourage that?
RAMYA SWAMINATHAN: I do think future grid is going to be more decentralized. And I think you’re going to see a lot of distributed resources and some of those resources are going to come from completely non-traditional what not what we would think of as power plants, EV2Grid, we’re not really used to thinking of that as a real power plant. So I think we are going to see a real decentralized grid environment, which means that those central figures of authority in the past who owned and controlled everything throughout the system are going to have less control over dispatch and generation, which means I think it is desirable. That said, that doesn’t mean it’s going to be less complex. And so the solutions we’re going to have to leverage in order to control that to ultimately result in electric power that is what I always say affordable, reliable, and resilient are going to be that much more complex. Recognizing that, that is the way that the world is moving. And you’ve got vertically integrated utilities that are used to controlling every aspect of power generation, distribution, transmission, load serving last mile who I think are going to see a world that is very different from what they were used to seeing. So accepting that reality today, understanding it, planning for it, and really thinking through the levers, the paths that we have, the tools that we have to bring to the table to make that result in a grid that still fulfills all these services is absolutely critical.
AZEEM AZHAR: It’s a really exciting vision. I have to say Ramya, the picture that you paint for the future. Thank you so much for taking the time to talk to me today.
RAMYA SWAMINATHAN: You’re very welcome. I am so excited myself. I think we’re standing on the precipice of a remarkable change in our world and it’s our job to make sure that that change is one that we’re proud of.
AZEEM AZHAR: If you enjoyed this discussion please check out our podcast feed, where you can listen to previous discussions with people like Michael Liebreich, one of the top analysts of the clean tech transition or Vaclav Smil, a historian of energy on the transition from fossil fuels and Michele Della Vigna, on the economics behind decarbonization. To become a premium subscriber of my weekly newsletter, go to www.exponentialview.co/listener where you’ll get a 20 percent discount. To stay in touch, follow me on Twitter, I’m @azeem. That’s A-Z-E-E-M or A-Z-E-E-M. This podcast was produced by Mischa Frankl-Duval, Fred Casella, Marija Gavrilov, and Bojan Sabioncello is our sound editor.